CAE Income Approach to Value

Question 1

What does 'effective gross income' (EGI) represent in the income approach to property valuation?

Accepted Answer

Potential gross income minus vacancy and collection losses

Answer

Net income after all operating expenses are deducted

Answer

Income before any adjustments for market conditions

Answer

Total rental income including all concessions and premiums

Question 2

Which of the following costs is typically classified as a 'below-the-line' expense NOT included in calculating net operating income?

Accepted Answer

Debt service (mortgage payments)

Answer

Property management fees

Answer

Real estate taxes

Answer

Insurance premiums

Question 3

The direct capitalization formula states that value equals:

Accepted Answer

NOI divided by the capitalization rate

Answer

NOI multiplied by the holding period

Answer

EGI multiplied by the overall rate

Answer

PGI divided by the vacancy rate

Question 4

In the income approach, a 'stabilized' vacancy rate assumes:

Accepted Answer

A long-term typical market vacancy under normal conditions

Answer

Zero vacancy in the best performing year

Answer

The actual current vacancy of the subject property

Answer

The highest vacancy rate observed in the market area

Question 5

Which category of expenses BEST fits 'property management fees' in income approach analysis?

Accepted Answer

Variable expenses

Answer

Fixed expenses

Answer

Reserves for replacement

Answer

Capital expenditures

Question 6

The gross rent multiplier (GRM) is MOST useful for valuing which type of property?

Accepted Answer

Small residential income properties

Answer

Large regional shopping centers

Answer

Special purpose industrial facilities

Answer

Agricultural land and timberland

Question 7

When contract rent is BELOW market rent, the tenant's interest is known as:

Accepted Answer

Leasehold estate value

Answer

Overage rent interest

Answer

Bonus rent position

Answer

Excess rent entitlement